Some U.S. community banks could soon find themselves better positioned competitively and engaging in more M&A discussions as the Justice Department reconsiders its antitrust review process.

The DOJ is seeking public comment on whether it should revise the 1995 Bank Merger Competitive Review guidelines. A series of questions, released on Sept. 1, touches on topics such as including online banks and credit unions in reviews, whether urban and rural areas should have different market-concentration thresholds, and a de minimis exception for transactions under a certain size.

The current guidelines evaluate a market's competitiveness by calculating deposit concentration from physical locations using the Herfindahl-Hirschman Index, or HHI. Over the last 25 years, the rise of financial technology competitors, credit union growth and online banking have rendered the calculation outdated, said John Gorman, a partner with bank-focused law firm Luse Gorman PC. The calculation can preclude two rural community banks from merging if they are the dominant players in a small market. Including online players and credit unions, as well as distinguishing between urban and rural markets, could make the calculation more meaningful, Gorman said.

"It would recognize reality and open some doors for possible combinations to improve peoples' competitive standing. It's sort of odd that in the name of anti-competitive behavior they are preventing transactions that could improve competition," Gorman said. "We should applaud the effort, but it's long overdue."

Under the current standards, community banks are not being preserved in rural areas, according to Christopher Cole, senior regulatory counsel at the Independent Community Bankers of America. Cole said there have been situations where the only two banks in a rural area want to combine to gain scale but decided against the deal due to antitrust concerns.

"What happens is, that county or area loses their community bank, and an out-of-state bank acquires both of them. To preserve some of these community banks in rural areas, there has to be some leeway given for how you define the market and even maybe as far as their HHI definitions should be changed," he said.

A change to how the Justice Department calculates thresholds in urban and rural markets could give community banks in rural areas more options for M&A partners, Gorman said. "It gives them the option and flexibility to at least consider [M&A]," he said. "They would still be a community bank but combined they'd be able to compete better."

Another significant change could be the inclusion of credit unions, thrifts and online banks in the DOJ's antitrust analysis. "You have so many more participants in the marketplace now, particularly in the small business lending area which is the community banks' bread and butter," ICBA's Cole said. "The guidelines need to be updated to take all the new participants into consideration."

Also, the DOJ is considering a de minimis exception for small transactions, providing only an automated report on competitive factors for such deals and not conducting an independent competitive analysis.

"It's a recognition that to current standards, most markets are considered uncompetitive, so let's focus on bigger transactions … and that will enable us to better focus on addressing antitrust concerns where they really arise," Clifford Stanford, a partner with Alston & Bird LLP, said in an interview.

The comment period closes Oct. 1. Banking agencies could also update their bank merger review guidelines depending on what the DOJ changes, Gorman said. "Our firm is assuming that if the DOJ makes these changes, the bank regulators fall in line," he said.

While what exactly the DOJ could update remains to be known until a proposal is announced, industry players agree that an update is overdue.

"1995 banking and 2020 banking just don't look the same anymore," Stanford said.